No doubt about it, Canadian investors possess a lot to complain about. The marketplace is on a roller-coaster, pulled this way and that by forces beyond our borders. The S&P/TSX composite was down more than eight percent by mid-January as benchmark oil prices dipped below US$30 a barrel and China continued to swoon. It recovered on speculation Russia and the Organization of Petroleum Exporting Countries would accept production cuts. Now the recovery proved short-lived, as oil prices once again dipped below $30. And so forth.
Meanwhile, the Canbuck is worth less against the greenback than anytime since 2002. Bank of Canada Governor Stephen Poloz says we have to get used to inflation.
Closer to the pocketbooks than our portfolios, we’re already paying more for cauliflower and meat and oranges. Heck, many of us can’t even afford to escape from everything in Vegas or Miami, since we’re paying a 40 percent premium on everything stateside.
Canada’s economy is really a zombie, our stock markets basket cases – right?
Well, it depends how you look at it. You have to maintain perspective (at least that is what they are saying). So when you do that, something becomes clear: maybe it’s a lot worse.
Like, say, should you lived in Brazil.
The comparison isn’t altogether out of left field, even though there are obvious differences between Canada and the place in which the nuts originate from. Brazil hosts 200 million people. This is an emerging economy. They have jungles there, for screaming loud. Plus they speak Portuguese, largely.
Yet there are several similarities. GDP both in countries hovers around US$2 trillion (Canada slightly below, Brazil slightly above). More to the point, Brazil is subject to the fluctuations of worldwide markets, because it is hugely dependent on the export of commodities like oil, iron, meat and grain.
Like Canada, Brazil’s economy, currency and stock exchange happen to be hit hard by the double whammy of decimated oil prices and China’s economic slowdown.
Yet around we complain, the damage Canada has sustained from these twin factors is comparable to Brazil’s in kind, although not in degree. Not with a long shot.
- Bill Gross sees ‘shades of 2007’ in latest investment outlookWhy low oil prices may suddenly be a problem for that global economy
The Brazilian real has fallen against the greenback by nearly 30 percent in the last 12 months, making the CAD’s 8.8 percent decline look piddling.
Brazil’s consumer price index rose by more than 10 per cent in 2015; Canada’s rose by 1.6 percent, despite 3.7 per cent food inflation.
Yes, Canada’s economy barely grew last year, but Brazil’s shrank by nearly 3 percent – the deepest recession for that country since 1901.
Meanwhile, and hardly surprisingly, Brazil’s Ibovespa stock index has fallen 20 per cent in the past year, and more than 8 per cent in 2016. The S&P/TSX composite’s 12-month return is -14.35 percent, and YTD its -3.43 per cent.
Compared with Brazil, that’s positively stellar.
This leaves the question of why. Exactly why is Brazil doing so badly when Canada is doing, well, just bad?
Here we are able to think about a few things we should be thankful for.
First, be thankful our economy is not as closely tied to China’s as Brazil’s economy is.
Brazil literally bet the farm on Chinese growth this millennium. Its do business with China expanded a lot more than 40 times between 2000 and 2013, making China its largest trading partner instead of america. Now, with Chinese economic growth foundering, Brazil is make payment on price.
At least we still have America to rely on.
Second, enjoy it Canada’s government doesn’t really matter much, comparatively speaking. That’s, when Canadian governments ruin, markets don’t care: You won’t be hearing any talk of a Mike Duffy factor on Bay Street.
In Brazil, it’s a different story, along with a different order of magnitude. The federal government under Dilma Rousseff is embroiled inside a widening scandal involving alleged kickbacks, bribery and embezzlement that threatens the administration. It has no doubt helped fuel uncertainty within the stock market C which is, by the way, probably the most volatile exchange within the Americas.
It doesn’t help the country’s state-owned oil company, Petrobras, is at the epicentre of the scandal. Its share price recently tested US$1. (Which jogs my memory of another aspect to be pleased about: Canada doesn’t have a state-owned oil company anymore.)
Third, be thankful we don’t have real stagflation (yet), which our central bank can continue to do something effective (probably).
You think Stephen Poloz is caught between a rock along with a hard place? Think about the central bank of Brazil. Its key interest rate is already at 14.25 per cent, and also the economy is shrinking. Raising rates to fight rampant inflation could deepen the recession (and spark a well known revolt), but lowering rates to stimulate the economy could stoke further inflation. No wonder it chose to do nothing at all and hold rates steady recently.
There’s more, of course: the Zika virus, an upcoming Olympics coping with huge cost overruns, and so on.
This is not to revel in other people’s misery, simply to point out that as much as we complain (with some justification) about the state from the economy and markets, Canadian investors have fared OK, all things considered.
And since we’re all feeling better, we can return to complaining.